News and Views

Governance doesn’t stop when the boardroom door closes after the meeting ends. While decisions cannot be made, nor courses altered, without engaging the whole board, there is much that can be accomplished outside of the boardroom. Only a rare group of directors can achieve all aspects of the board’s work in the smattering of meetings sprinkled throughout the year. For the many directors who lament the limited time to really get to know the organization before weighing in on important strategic priorities, the time between is the perfect antidote.

The governance reality is that board work is increasingly becoming more of a job. On average, corporate directors spend 10 hours on board-related work for every hour in the boardroom. Multiply this by two or three for the Board Chair. When not on the phone with the CEO, checking in with committee chairs, directors and stakeholders or networking with potential future directors, the Chair is thinking about the board and organization. This between meeting involvement isn’t restricted to the Chair; committee chairs also take an active role liaising with committee members and their management counterparts. The increasing awareness of this high level of engagement and activity is reflected in proxy firm recommendations to limit the number of boards individuals can sit on.

Hey WATSON, “10 hours on board-related work for every hour in the boardroom” … really?!

Intentional boards recognize that fostering strong director-management relationships is different than letting directors meddle into operations. This grey line is reason to raise the yellow governance caution flag. Before setting directors loose, boards should develop clearly articulated protocols. Without a rulebook, boards run the risk of well-intentioned directors overstepping their boundaries, causing more damage than good to board/management dynamics. You may think you’re “just a regular Jane or Joe” during a site visit, but the staff will look to you as their bosses’ bosses’ boss. Management teams’ top criticisms of directors gone wild include acting like quasi-bosses, undermining the CEO and playing favourites.

Governance Yellow Flag

Set the rules before you set directors up for possible failure. Determine what directors can and cannot do outside of the boardroom. If informal mentoring is going to happen (one-off lunches or meetings), build a protocol around it. For example, directors should let the Chair know of upcoming meetings with management counterparts, what the purpose is, and after the meeting, share an update. The CEO should establish similar protocols with the management team and expect a similar heads up from her executives. It is then the mutual responsibility of the Chair and CEO to ensure they are talking to each other. However, if the Chair or CEO is uncomfortable with the process, do not do it.

The CEO also has a role to play by creating an engaging environment for directors to learn more about the company for which they are ultimately responsible. In the spirit of creating a learning board culture, consider:

However, the CEO also has to remember to keep it real – the old joke about the Queen smelling fresh paint everywhere she goes because it’s been touched up just for her isn’t that funny when it comes to showing directors what’s really going on in the trenches.

For most boards, it isn’t the norm for directors to mentor and advise executives one-on-one, but directors are expected to share their experiences with the leadership team. Context often influences the role directors may play outside of the boardroom. For example, in a public company you may want to take advantage of directors’ knowledge, experience and networks, particularly if you have a sitting CEO on the board. High performing boards harness the talent of the board. If you have done your recruitment job well, your board will have a diverse, skilled and experienced set of directors who can provide valuable insights to the organization’s leadership. Let’s face it, a CEO cannot be expected to be an expert in every area of the organization, particularly when you consider first-time strategic endeavors, such as M&As, international expansions or product diversification.

Four Ways for Directors to Get More Involved Outside of the Boardroom

Site Visits – Coordinate site visits to different locations. Don’t restrict this process to early onboarding. Develop annual opportunities for directors to observe and learn firsthand about unique aspects of the company. Transparency is key. Never show up unannounced and communicate any feedback through the proper channels. Management should welcome, not fear, director site visits.

Industry Conferences – Immerse yourself into the industry issues facing the organization by attending conferences. This non-company perspective can shed light on trends and risks the board should be paying attention to.

Input Into Key Hires – You wouldn’t hire the CFO without the Audit Chair’s input, so why stop there? Committees and directors with deep expertise in specific fields can add valuable insight during the recruitment process. But make sure directors are very clear on their role in the process – consulted, yes, decision making, no. Final authority resides with the CEO.

Ad Hoc Task Forces – At times, it may make sense for directors to take a more active role in very defined projects; a common practice is engaging directors on a major acquisition or capital project. Typically, directors should not be engaged as a talent gap replacement, but more in an oversight and risk management capacity.

If you’re new to the board and unsure if it’s appropriate for you to engage with executives, talk to the Chair and CEO to learn more about board norms and expectations of directors both inside and outside the boardroom.

The time between meetings is a brilliant way to bring directors and management closer, but it comes with some inherent risks. In order to set directors up for success, set the rules of engagement and always respect the CEO’s authority and leadership. The days outside of the boardroom are an opportune time for directors to learn, connect and immerse themselves in specific aspects of the company. Over time, your board’s collective expertise and knowledge will rise, in concert with thriving board-management dynamics.

Whatever you do, do not just do what other boards are doing. Peer evaluations are nuanced and deserve a customized approach. After all, when it comes to governance, one size does not fit all.

9 Steps to Customizing Your Director Evaluation Process

Design a peer evaluation process that works for your board by ensuring there is agreement on the following questions:

1. What is the objective?

The true purpose of a director peer evaluation exercise is not to create a report card for directors but to provide each director with a sense of how fellow directors view their performance, where they are seen to perform well and where their peers see opportunities to contribute further to the board’s performance. Determine what your board hopes to get out of the process and work backwards from there.

2. Who will lead the process?

While the Governance Committee or Chair may lead the process internally, many boards use an outside party to gather and analyze feedback (either through the use of surveys or interviews). An externally led process offers the most confidential environment so directors feel comfortable sharing candid feedback on their fellow directors, which is central to a meaningful peer evaluation. Whether or not an external consultant is used, consider who is best positioned to lead the process on behalf of the board.

3. Who will be evaluated?

To be truly effective, all directors should receive personalized, confidential feedback on their performance. Directors may also receive feedback on their contribution as members and/or chairs of committees. The Board Chair should also receive feedback on their chair role, either through a separate chair evaluation process or as part of their director evaluation report.

4. Who will participate in the evaluation?

Most often, only directors provide feedback as part of a director evaluation process. However, when dynamics and board/management relations and strong, some boards also seek feedback from members of management who engage regularly with the board.

5. What will be evaluated?

A well-rounded evaluation balances the distinctive set of competencies that each director brings to the boardroom with the general competencies expected from all directors, as set out in a Director Position Description or Terms of Reference. The criteria for measurement typically include:

6. How will the feedback be collected and managed?

As with board evaluations, interviews typically yield deeper and more nuanced insight, although it is quite common for boards to seek feedback on individual director performance by way of a structured survey. Many boards opt to do both. When using a survey, include both quantitative and qualitative questions. Use open-ended qualitative questions to elicit deeper feedback, for example: How would you describe this director’s boardroom style (i.e., interaction with fellow directors and management)?

Provide directors with a primer outlining tips on how to share constructive feedback (specific, low in judgement and supported by examples) and make their comments as clear as possible to avoid misinterpretation.

If management is providing feedback as part of the process, care should be given to how they provide feedback. Often members of management feel more comfortable sharing qualitative feedback through open-ended survey questions or confidential interviews.

7. What will be done to ensure confidentiality?

Feedback is typically gathered from each participant on an attributed basis so the person leading the process can clarify feedback with the author as necessary. However, feedback is shared with each director on an unattributed basis. Careful attention must be paid to diligently strip language, phrases and examples from feedback that might be traced back to the author.

Regardless of who is leading the process, their ability to ensure strict confidentiality of all feedback is critical to the integrity of the process.

8. How will the data be compiled, analyzed, interpreted and presented?

Data is typically compiled, analyzed and interpreted by whoever leads the process. However, when internally led, analysis and interpretation can be susceptible to unintended bias and those leading the process should take great care to analyze and interpret the feedback in an objective and consistent manner. Results are typically presented in confidential written reports, seen only by the director in question and the Chair.

For quantitative feedback, it is common practice to provide each director with a summary of the feedback, showing the director’s self-assessment and the average assessment of the director by peers (and sometimes the average assessment of the director by management, if sought). For qualitative feedback, the feedback is categorized into key themes supported by specific comments or fed back as is. In the case of the latter, ensure those providing feedback are aware that their unedited feedback will be shared with directors (minus anything inflammatory or inappropriate) – this often changes the nature and tone of feedback provided.

When management provides feedback, it is important to consider whether their qualitative feedback is presented separately or woven into the director feedback. Often when the management team is small, their feedback is incorporated into director feedback to protect anonymity.

9. What will we do with the results?

Once the feedback has been gathered, the Chair leads a one-on-one coaching session with each director to review the feedback. If an external consultant is involved, typically the consultant first shares the results with the Chair and coaches them on how to deliver the feedback. In some situations, the consultant and Chair may jointly deliver the feedback. Some boards follow up with a written memo outlining specific agreed upon actions.

The Board Chair, Governance Committee or full board are often provided the average board and management rating for each question to guide board development.

As with board evaluations, many boards struggle with implementation and follow-up of director evaluations. To overcome this hurdle, we recommend directors acknowledge the feedback received and any action items discussed with the Chair. It is also useful to invite directors to reflect on their own performance – what do they think are their major contributions and where could they improve their contribution. Together, the Chair and director should agree on a follow up plan, based on the feedback provided in the evaluation.

Ask WATSON

Hey WATSON, how does the board’s skills matrix fit into the director evaluation process?
One innovative approach is to use the director evaluation process to assess directors against the board’s skills matrix. Instead of having directors self-assess their own skills, each director is asked to identify the areas in which other directors are seen to make a significant contribution to boardroom discussions. The results show the overall perceived strength of the board in relation to the stated needs.

Peer evaluation is an evolving practice. While some boards are reluctant to become too formal in their approach to individual evaluation and feedback, those who embrace the concept of feedback have found the process to be an important part of director development and continuous improvement.

Stay tuned for Part 3 of the Year of the Peer series: Mastering Peer Evaluation Feedback

This may not be your year, no matter how much talk there is about peer evaluations. Although over 90% of the largest boards in Canada have adopted director peer evaluations1, the timing may not be ideal for your board. But it just may be the right time to start the conversation. Like all aspects of intentional governance, the conversation begins with understanding your board’s purpose in pursuing an evaluation. It also comes down to readiness. Without both, there is a risk of the process causing more harm than good, particularly when it comes to relationships and board dynamics.

The true purpose of a director peer evaluation exercise is not to create a report card for directors but to provide each director with a sense of how their performance is viewed by others, where they are seen to perform well and where fellow directors believe there are opportunities to contribute further to the board’s performance. Directors tend to take feedback from their fellow directors very seriously. Though a collective openness to an evaluation is critical, it isn’t always enough.

Your board may not begin with a unified point of view. That’s OK. The depth of dialogue and willingness to share and hear each other’s perspectives is a sign of a healthy board. If it feels like directors are close, keep the conversation going until there is a unified point of view. If there are too many divergent opinions, you may consider parking the issue for now and revisiting at a later date.

Evaluating the performance of the people as well as the board as a whole is best practice, but it may not always be the right practice for your board. Boards should consider four factors when deciding whether or not to formally evaluate individual directors:

Evolutionary state of the board

The length of time directors have served together

Organizational history

Strength of board culture and dynamics

Most boards do not pursue a peer evaluation until they are confident in the quality and effectiveness of their underpinning governance practices and policies, from a solid board manual to a sound code of conduct. They also take continual improvement seriously. Too often boards invest considerable time, money and resources in evaluating board and director performance and then fall short on implementing recommendations and sustaining change. Peer evaluation-ready boards have experience in both evaluation and implementation.

Take the Readiness Test

Before you assess your readiness, ask yourselves one BIG question: Why are we doing a peer evaluation? If directors are not 100% in agreement on the WHY, then all the readiness in the boardroom will not guarantee a successful outcome.

Once you know the WHY, consider the following questions to determine whether or not your board is ready for a peer evaluation:

Do we regularly evaluate the full board?

Do we have position descriptions for individual directors?

Do we have director performance expectations?

Will the full board own the process?

Would our board dynamics be characterized as respectful and open?

Are we confident that this process will not cause harm to any directors?

If you answer NO to any of these questions, your board may not be ready at this time. Recognizing this can help you get there in the future. Think about why you answered no to the question and what specifically needs to shift to turn that answer to a yes.

If you answered YES to all six questions, you may be ready. But what are you ready for? As with board evaluations, there is no “one size fits all” approach to peer evaluations. The specifics of the process are typically developed by the governance committee based on the evolutionary state of the board, the expectations of directors and the previous experience of directors with peer evaluations. When designing a peer evaluation process, consider and ensure there is agreement on the following questions:

What is the objective?

Who will lead the process?

Who will be evaluated?

Who will participate in the evaluation?

What will be evaluated?

How will the feedback be collected and managed?

What will be done to ensure confidentiality?

How will the data be compiled, analyzed, interpreted and presented?

What will we do with the results?

The difference between a mediocre evaluation and a game-changing peer evaluation lies in a deliberate, thoughtful approach. Understanding your purpose and assessing your board’s readiness ensures your board starts off on the right foot. When you have both purpose and readiness, it may just be the perfect time to build the right peer evaluation for your board.